Compulsory liquidation

Compulsory liquidation is when a company (or partnership) is wound up by an order of the court. As part of this process, the liquidator will realise and distribute the assets of a company before moving on to conclude its affairs.

Here are some of the main points regarding the compulsory liquidation procedure:

A winding up order is most commonly made by the court if the company is unable to pay its debts and a creditor has issued a winding up petition against it. An order will not normally be made if the debt is bona fide disputed. The company itself as well as its directors and shareholders are also able to present a petition.

The court uses three criteria to arrive at the conclusion that a company is unable to pay its debts. These are:

When the value of total liabilities exceeds the value of total assets.

When a statutory demand of more than £750 remains unpaid for 21 days.

When the company is subject to an unsatisfied judgment execution.

This type of liquidation is usually instigated by creditors as a means of attempting to collect debts owed to them. Once appointed by the court, the Official Receiver (an officer of the court and civil servant employed by The Insolvency Service) has considerable powers of investigation into a company’s affairs and the reasons for its failure.

In most cases, the directors of a company should have recognised the potential onset of formal insolvency. Having done so, they should then have taken action to select the most suitable option, rather than just allowing the company’s creditors to force it into compulsory liquidation.

Therefore, if you feel that your company is heading towards this situation, it is essential that you speak with one of the trained team at Streets SPW as soon as possible. Streets SPW has more than 50 years of experience in insolvency proceedings and can help you with every single aspect of this complex process.